Sunday, February 9, 2020

Strategic Alliances- Note















Alliances present a paradox. On one hand, firms engage in a large number of alliances, to reach out to userbase and work out a competitive advantage, on the other hand, the success rate is too low. Studies have shown 50% of alliances fail to meet the goals of parent companies or deliver on operational or strategic benefits they purpose to provide. What is the cure?- Trust, Commitment & Firm-level capability for Alliances

According to the E&Y Report, 2004, a large number of companies utilize 30% of research resources to either manage or seek new alliances.

Gulati(2005)- A strategic alliance is a purposive relationship between two independent firms that involve the exchange, sharing or co-development of resources to achieve mutually beneficial objectives. A strategic alliance can span more than one or more parts of the value chain in the organization

In general, an alliance comprises of four major stages:

Formation phase- In this phase, the firm opens up a discussion with potential partners and set the objectives of the alliance. The criteria to select potential partners vary from reach out to userbase to JVs.



























The most important aspect is that both partners should bring non-overlapping competencies to the table. Partner compatibility & commitment  forms the basis of a successful alliance

Design phase- In this phase, the construct of the campaign is designed

Execution phase-In this phase, the commercials, legal and compliance details of the alliance are executed. The alliance is managed ongoing basis, to realize the value

Contracts help manage exchange hazards in a variety of ways. In this phase, two things define the success of alliance- Co-ordination & Trust

Measurement- In this phase, the metrics/objectives of the alliance are measured( Alliance Manager, Alliance committee)

Alliance Guideline:



















Source Mckinsey Quarterly- Excellent way to describe the future of analysis:

For example, one company in the power industry calculated the embedded option value of a potential alliance to commercialize a critical new technology, evaluating the odds of different possible outcomes and the associated payoffs for each. Its calculation showed that for the given alliance the firm had a 10 percent chance of creating $1 billion in annual income within three years, a 20 percent chance of creating a modestly successful business producing $10 million to $30 million in annual income, a 60 percent chance of losing $10 million to $30 million, and a 10 percent chance of losing more than $200 million. This profile of potential option value was extremely sensitive to assumptions regarding technology and construction costs, leading the company to closely monitor the alliance’s early performance while reserving the right to cut off funding in the event that technical progress slowed.